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Federal Register / Vol. 86, No. 145 / Monday, August 2, 2021 / Notices
In the French Substituted Compliance Notice and Proposed Order, the Commission stated that the French Authorities had satisfied this prerequisite in the Commissions preliminary view, taking into account information and representations that the French Authorities provided regarding certain French and EU requirements that are relevant to the Commissions ability to inspect, and access the books and records of, firms using substituted compliance pursuant to the Order.21
The Commission received no comments on this preliminary view and has not changed its view.

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D. Commenter Views of General Applicability As the Commission previously discussed, commenters raised a variety of concerns and other views regarding specific aspects of the proposed Order apart from certain global concerns addressed below in part II.D.1 through 4.22 Those included: Concerns that the interplay between certain proposed MiFID-related conditions to substituted compliance for risk control requirements and a proposed EU crossborder condition would undermine the availability of substituted compliance; 23
views regarding the possibility of substituted compliance related to capital; 24 and views regarding substituted compliance in connection with books and records requirements.25
The Commission reopened the comment period in April 2021.26 The Commission also requested comment on a number of specific issues, including:
The potential removal of MiFID
provisions from the trade acknowledgment and verification and trading relationship documentation conditions in conjunction with 21 See French Substituted Compliance Notice and Proposed Order, 85 FR at 85721 n.5.
22 See generally Reopening Release, 86 FR 18341.
See also Letter from Kyle Brandon, Managing Director, Head of Derivative Policy, SIFMA Jan. 25, 2021 SIFMA Letter I; Letter from Wim Mijs, Chief Executive Officer, European Banking Federation Jan. 25, 2021 EBF Letter I
generally supporting the SIFMA Letter I; and Letter from Etienne Barel, Deputy Chief Executive Officer, French Banking Federation Jan. 25, 2021
FBF Letter I. Comments may be found on the Commissions website at: https www.sec.gov/
comments/s7-22-20/s72220.htm.
23 Reopening Release, 86 FR at 18343 expressing the view that the interplay of those MiFID
conditions and the proposed EU cross-border condition in practice would undermine the availability of substituted compliance for Covered Entities that have branches in EU Member States for which the Commission has not entered into an applicable substituted compliance memorandum of understanding.
24 Id. at 1834347.
25 Id. at 1834748.
26 See Reopening Release, 86 FR 18341. The reopened comment period ended on May 3, 2021.

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additional general conditions to address the resulting increased reliance upon EMIR; 27 the inclusion of additional capital standards; 28 the availability of greater flexibility in distinguishing between recordkeeping and reporting requirements; 29 limiting the definition of covered entity; 30 and supplementing the internal supervision and compliance conditions.31 In response, commenters expressed a range of views and identified a number of specific issues with the proposed conditions and prerequisites for each subject matter of the proposed Order for which substituted compliance is available.32
1. Effects of Non-Compliance One commenter addressed a Commission statement that noncompliance with applicable French and EU requirements would lead to a violation of relevant requirements under the Exchange Act. The commenter particularly requested that the Commission represent that SBS Entities would not violate the Commissions requirements where the relevant foreign regulatory authority has found no violation of the comparable French or EU requirement and the SBS Entitys conduct would have complied with the Commissions requirements even if the SBS Entity relied on French and EU
rules that imposed stricter or additional requirements. 33 The commenter also expressed a concern that the Commission might find a violation of the foreign laws even where the Commissions own requirements would be fulfilled.34 The commenter further requested that the Commission state that it will not independently examine for or otherwise assess whether an SBS
Entity is complying with EU or French requirements. 35
at 1834143.
at 1834347.
29 Id. at 1834748.
30 Id. at 18348.
31 Id.
32 See Letter from Kyle Brandon, Managing Director, Head of Derivative Policy, SIFMA May 3, 2021 SIFMA Letter II; Letter from Wim Mijs, Chief Executive Officer, European Banking Federation May 3, 2021 EBF Letter II; Letter from Etienne Barel, Deputy Chief Executive Officer, French Banking Federation May 3, 2021 FBF
Letter II; Letter from Americans for Financial Reform Education Fund May 3, 2021 AFREF
Letter; Letter from Dennis M. Kelleher, President and CEO, Stephen Hall, Legal Director and Securities Specialist, and Jason Grimes, Senior Counsel, Better Markets, Inc. May 3, 2021 Better Markets Letter at 34. Comments may be found on the Commissions website at: https
www.sec.gov/comments/s7-22-20/s72220.htm.
33 SIFMA Letter I at 9; see also FBF Letter I at 2.
34 See SIFMA Letter I at 9 n.22.
35 SIFMA Letter I at 9.

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27 Id.
28 Id.

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Although the Commission expects to take the views of foreign regulatory authorities into account when it considers whether registered entities have complied with the conditions to substituted compliance, the Commission cannot make the requested representations. It is for the Commissionnot foreign regulatorsto determine whether a non-U.S. SBS
Entity has complied with the conditions to substituted compliance and with the Federal securities laws. Moreover, as noted, even with substituted compliance the Commission retains its full authority to inspect, examine and supervise registered entities compliance with the Federal securities laws, and to take enforcement action as appropriate.36
2. Prerequisites to Substituted Compliance One commenter stated that the Commission should make a positive substituted compliance determination only when the Commission determines that granting substituted compliance promotes the protection of the U.S.
financial system.37 The commenter also stated that grants of substituted compliance must be predicated on a well-supported, evidence-based determination that the relevant foreign requirements will produce substantially similar regulatory outcomes.38 Congress gave the Commission authority in Title VII to implement a security-based swap framework to address the potential effects of security-based swap activity on U.S. market participants, the financial stability of the United States, the transparency of the U.S. financial system and the protection of counterparties.39 When adopting rules regarding the application of Title VIIs 36 See Business Conduct Adopting Release, 81 FR
at 30079.
37 See Better Markets Letter at 34.
38 See id. at 4.
39 See Exchange Act Release No. 72472 June 25, 2014, 79 FR 47278, 47286 Aug. 12, 2014 CrossBorder Entity Definitions Adopting Release citing Pub. L. 111203, Preamble stating that the DoddFrank Act was enacted to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes; Public Law 111203, sections 701774 providing for, among other things, a comprehensive new regulatory framework for security-based swaps, including by:
i Providing for the registration and comprehensive regulation of security-based swap dealers and major security-based swap participants; ii imposing clearing and trade execution requirements on security-based swaps, subject to certain exceptions;
and iii creating real-time reporting and public dissemination regimes for security-based swaps.

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